UK Spring Budget 2023: energy and heat sector implications

United Kingdom

The UK government has made a number of announcements in its Spring Budget.  We have set out below the key measures that will impact the energy and heating sector. The full Spring Budget can be found here.

The key announcements of measures in the energy sector are:

£20 billion funding for early deployment of Carbon Capture, Usage and Storage (CCUS) projects

The UK Government has allocated £20 billion over next two decades towards funding of CCUS (including BECCS) projects. The form that this support will take has not been specified.

The Government has restated its support of the preferred cluster projects already identified: HyNet (Merseyside) and East Coast (Tees-Humber) projects. It is unclear whether the North East’s Acorn Scheme and Viking (South Humber) which have been awaiting government approval will receive backing.

The long-awaited shortlist of eligible projects for the first phase of the CCUS deployment (i.e. the emitters to be connecting into these first clusters) is expected to be announced “later this month”. A selection process for further projects is to be launched this year, including additional capture/emitter projects to enter a Track 1 expansion along with 2 additional clusters to be selected through a Track 2 process.

CCUS projects reusing oil and gas assets will be subject to a tax treatment with respect to payments into decommissioning funds. This is expected to be legislated for in a future Finance Bill.

Nuclear classified as 'environmentally sustainable'

Subject to consultation, the Government intends to classify nuclear projects as “environmentally sustainable” for the purposes of UK’s green taxonomy. This would give the nuclear industry access to the same investment incentives as more traditional renewable energy projects.

The Government, via the Great British Nuclear (a new body created to support the UK’s nuclear industry and facilitate nuclear builds) will launch its first competition for the design of Small Modular Reactors (SMRs). The Government aims to select the best technologies by the end of 2023 and hopes to co-fund the technology if proved to be viable.

Extension of the Energy Price Guarantee (EPG):

The Energy Bill Price Guarantee cap (i.e. average energy bill amount paid by domestic consumers) is to be extended at £2,500 until end of June 2023. The planned increase to £3,000 will therefore be implemented on 1 July 2023.

End of Pre-Payment Meter premium

On the retail market side, the Government will align charges for comparable direct debit and Pre-Payment Meter (PPMs) customers, ensuring that those on PPMs no longer pay a premium for their energy costs until April 2024. This measure only applies where a structural PPM premium exists.

Climate Change Agreement

The Climate Change Agreement Scheme is due to extend for a further 2 years to give a £600m tax relief package on energy efficiency measures to eligible businesses.  Eligibility of new participants, details of the extension and proposals for any potential future Climate Change Agreement scheme will be subject to further consultation.

Electricity Generation Levy (EGL) – no news

There were no new announcements, other than the forecast revenues and confirmation of forthcoming legislation

Changes to the Low Carbon Levies (CLCL) – changes later this year

The Government intends to amend the existing CLCL regime to have it replaced by a new framework to reflect their energy security priorities. More details are expected later in the year.

Heating reliefs: Energy Bills Discount Scheme and Swimming Pool Support Fund

Two forms of support were targeted specifically at heating:

  • Energy Bills Discount Scheme for non-domestic customers on the UK domestic Heat Network customers will provide a higher rate of relief, set to align with that paid by consumers under the EPG.
  • £63m Swimming Pool Support Fund for public swimming pools in England to assist with heating bills and to invest in energy efficiency measures to reform facilities, reduce future operating costs and deliver long-term sustainability.

Comment and next steps

Many of the announcements had been anticipated by the industry and will in any case be welcome news. The details of the legislative programme needed to bring these into force will be the next step the industry will seek.

If you would like to discuss any part of the announcements and impacts for your business, please feel free to get in touch with the authors.